4. finance for growing businesses
TRANSCRIPT
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Finance for Growing Businesses
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1. A sole trader may become a ___________________________ in order to obtain enough new finance to expand his business.
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2. A partnership which is looking to expand may decide to become a ___________________ _____________ ______________________ when new owners join the business - called _____________________________________. In a Ltd company the shareholders are family and friends.
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3. Only a ________________ ________________ ________________________ can raise capital by selling shares to the general public on the Stock Exchange. The major benefit of becoming either a Ltd or PLC is __________________ _____________________ i.e. shareholders only stand to lose the value of their investment should the business fail (and not their personal belongings/savings which could happen to a partnership/sole trader who gets in debt).
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4. These shareholders who invest their money to buy shares in a company will receive financial rewards from the company (if it makes _____________________) in the form of _______________________.
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5. If the company only makes a little profit, _____________________ shareholders may not receive any dividend at all.
This is because _________________________ shareholders have the right to receive any dividends first. However because of this greater ___________, ordinary shareholders can expect higher dividends if the company is very profitable
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6. ________________________________ holders are individuals who loan money to a business.
The loan agreement states how much interest they are due from the business before any dividends to ordinary and preference shareholders are paid.
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At an agreed date, these debentures are ____________________ in full.
Only _______________ _______________ _____________________ can raise extra capital from issuing debentures.
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Sources of Finance
• Page 20 - 21
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Bank Overdraft
• Temporarily withdrawing more money than is in the business’ bank account
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Trade Credit
• Buy now – pay at a later date
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Factoring
• “Selling” the invoices you have issued to customers to a “factor” - saves waiting for payment
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Grant
• Money which is gifted to a company which meets certain criteria e.g. located in area of deprivation
• Does not need to be paid back
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Retained Profits
• Like company “savings” from profits of previous year(s)
• Does not need to be paid back and can be accessed quickly
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Bank Loan
• Company borrows money from a bank and agrees to repay it over a period of months/years
• Advantage - instalments are spread over a period of time
• Disadvantage – banks may refuse to lend if no ‘security’ (collateral) is given
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Leasing
• Similar to renting an asset e.g. van, machinery or premises
• Monthly payments made to the owner of asset
• Saves company having to pay the full purchase price outright
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Hire Purchase
• Similar to leasing however monthly payments are higher AND the asset will eventually be owned by the business
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Owner’s Savings
• Only suitable for a sole trader or partnership
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Share Issue• Only suitable for a private limited
company (Ltd) to sell to selected family or friends OR for a public limited company (PLC) to sell to the general public on the Stock Market
• Another disadvantage is that it dilutes ownership and control
• Shareholders also expect dividends regularly
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Debentures
• Only for PLCs• Debenture holders are NOT
shareholders therefore have no voting rights
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Venture Capital
• Major advantage is that they are prepared to invest in more riskier businesses
• However dilutes ownership
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1. A sole trader may become a ___________________________ in order to obtain enough new finance to expand his business.
partnership
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2. A partnership which is looking to expand may decide to become a ___________________ _____________ ______________________ when new owners join the business - called _____________________________________. In a Ltd company the shareholders are family and friends.
private company
shareholders
limited
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3. Only a ________________ ________________ ________________________ can raise capital by selling shares to the general public on the Stock Exchange. The major benefit of becoming either a Ltd or PLC is __________________ _____________________ i.e. shareholders only stand to lose the value of their investment should the business fail (and not their personal belongings/savings which could happen to a partnership/sole trader who gets in debt).
liabilitylimited
companylimited public
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4. These shareholders who invest their money to buy shares in a company will receive financial rewards from the company (if it makes _____________________) in the form of _______________________.
a profitdividends
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5. If the company only makes a little profit, _____________________ shareholders may not receive any dividend at all.
This is because _________________________ shareholders have the right to receive any dividends first. However because of this greater ___________, ordinary shareholders can expect higher dividends if the company is very profitable
ordinary
preference
risk
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6. ________________________________ holders are individuals who loan money to a business.
The loan agreement states how much interest they are due from the business before any dividends to ordinary and preference shareholders are paid.
Debenture
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At an agreed date, these debentures are ____________________ in full.
Only _______________ _______________ _____________________ can raise extra capital from issuing debentures.
companieslimitedpublic
repaid